Spending by Bottom-80% U.S. Households Is Persistently Greater than Income. What Funds the Deficit?

This paper employs the recently released BEA Distribution of Personal Income accounts to explore economic measures that have been surprisingly hard to assemble: household income quintiles’ annual spending relative to annual income. The personal sector’s income-minus-spending surplus (“saving”) is heavily dominated by the top quintile. The bottom 80% runs persistent spending deficits, dissaving, implying ongoing asset disaccumulation that should encounter Minsky/Hicks’ “survival” or “sustainable-consumption” constraint. The bottom 80%’s annual propensity to spend, or spending multiplier, is consistently greater than one. Employing balance-sheet-complete stock-flow-consistent accounting, the deficit is found to be largely explained or “funded” by two additional asset sources that are not included in income: borrowing from the financial/banks sector, and — to a far greater extent — holding gains on asset holdings. The accompanying workbook provides time series of annual propensities to spend out of 1. Disposable income and 2. Haig-Simons income, for each quintile, 2000–2019. Accuracy and possible extensions to the data sources and methodology are discussed.